Question

School has been paying the UBIT every year. To reduce or eliminate this year's tax liability, School might:

a.Relate the profit-making activities to its educational purpose.

b.Conduct the profit-making activities on a regular basis.

c.Both "Relate the profit-making activities to its educational purpose" and "Conduct the profit-making activities on a regular basis".

d.Neither "Relate the profit-making activities to its educational purpose" nor "Conduct the profit-making activities on a regular basis".

Answer 1

Option A is correct. i.e Relate the profit making activities to educational purposes.

Tax exempt institution like school are exempt from taxes but when it is generating Unrelated business Income (UBI). Such profits are liable for UBIT ( Unrelated Business Income Taxes) as per IRS provisions, if not related to furthering of educational purpose.Such Income have to reported in Form 990-T and taxed at mentioned rate.

To eliminate or reduce such UBITs , School have to ensure that such profits are not consider unrelated to educational purpose and for that it have to take required steps so that it can relate all such income ( Profits) to Exempted purpose of School i.e Education.